Last week I attended the TEDGlobal conference in Edinburgh. I’m working on writing up those notes to share later. In the meantime, there were a few recurring themes worth sharing, such as within 15 years the world’s population will be 70 percent urban. I think we need to decide what that means to us as a country, as a state and as a community. On a very basic level it means some rural communities aren’t going to survive. Are we OK with that? And if you live in a rural community are you OK with your community not surviving. Because another theme was the importance of technology and broadband. If you don’ t have broadband, I think you lessen the odds that your community will make it, which leads to the need to effect policy to promote broadband and a new report, State USF White Paper: New Rural Investment Challenges.
The authors point out…
Without sufficient policy-based investment support, the future is clear. Telecommunications companies will have no choice except to focus on economic clusters of population and withdraw from offering broadband and voice services to high-cost customers. Where broadband does not exist at present and will not be supported sufficiently, all terrestrial universal service—for voice and broadband—will cease. Universal Service, as legislated in the Telecom Act, appears to be at risk.
Federal and state regulators and legislators stand on the threshold of a new era as they survey their direct and complicated responsibility for the welfare of citizens who live in a vast expanse—most of the land mass—of this country.
They also lay out the issues succinctly…
Emerging Problems for Rural Customers
The state’s policy challenge. States must begin immediately to analyze policy, costs, and their willingness to supplement federal support that will be offered within the next six to nine months. Regulators and legislators stand on the threshold of a new era as they survey their direct and complicated responsibility for the lives and welfare of citizens who live in a vast expanse—most of the land mass—of this country. State policymakers will have to choose whether and how to support customers’ communications needs in many high-cost, rural regions in the wake of sharp reductions in universal service and intercarrier compensation support for those areas.
Deep cash flow reductions. USF/ICC support benefiting rural customers served by larger price-cap carriers could be reduced by an estimated 85%-90% in many areas from 2012 to 2020 and, for smaller carriers, by approximately 35%; cash flow percentage losses will be well higher. The analysis excludes CAF II funding due to the uncertainties surrounding the costly new obligations and the potential that a significant percentage of the funding, if insufficient, will be declined by carriers. The cumulative effect by 2020 could be a loss of customer-facing investment support of up to $6 billion and $5.2 billion available to larger and smaller carriers, respectively. The predictable result is reduced investment in many areas.
Investment is already collapsing in many areas. The two largest rural lenders report sharply lower recent loans for infrastructure investment. The major cooperative bank, CoBank, reports no 2012 loans for network improvements. The Department of Agriculture’s Rural Utilities Service (RUS) has annually loaned all its available funds . . . until 2012 when rural telcos tapped only 11.6% of the $690 million available. In 2012, only 9.4% was borrowed of the $736 million available for RUS broadband loans.
Critical telecom services. Because traditional USF is terminated, the reforms could put at risk even terrestrial voice and 911 services if a carrier decides it cannot justify accepting federal support with the new broadband mandates. The potential loss of combined state and federal support could affect customers who likely need services the most. Carriers will have no choice except to focus on economic clusters of population and withdraw from offering broadband and voice services to high-cost customers.
Wireless broadband rate problem. Wireless is not a replacement broadband service, not only due to reliability issues, but because wireless broadband pricing is increasingly volume-based and is expected to remain prohibitively high compared with far more affordable terrestrial services.
On a high level the report shares some basic observations – broadband is necessary, federal funding is declining and competition in competitive areas makes it more difficult to serve high-cost areas. The report is very detailed and would be a good primer for local leaders and policymakers. I suspect there will be little news in it for the providers on the frontlines. One detailed note I wanted to emphasize was the need to recognize the difference between subsidy and support – where aligns with another TED theme – public-private partnership (or government-business-civil society partnership)…
“Support” is different from a “subsidy.” Opponents of USF often use disparaging references to “subsidies” when arguing against the USF policy program. “Subsidies” are, in the strictest sense, assistance to a troubled business or to an economic sector to help the producers or the industry remain viable, including against other competitors, which are often foreign entities. However, USF is not fundamentally “assistance” to help a struggling carrier or sector, nor is it a protection for the carriers. In fact, wireline carriers can often have successful businesses if they are able to concentrate their operations on profitable services and customer clusters. If there is a “protection,” it is to assure that customers are served in regions where no provider—on its own—is able to offer an economic service. The “support” payments are part of a partnership—clearly established in federal legislation—between private carriers and policymakers who choose to “purchase” another “product-set” in high-cost regions, which is customer service that otherwise would not be provided in those regions. The distinction is important at the start of this White Paper, as USF is a policy commitment to customers not to companies. And companies will be compelled to drop high-cost services without that ongoing policy commitment.
Finally the paper stresses the need for urgency at a state level. The FCC is working on Connect America Fund (CAF) II, which will lay out funding support options for providers. Then the FCC will turn to reserve auctions to see who will provide service, but there is skepticism about the funds available. Minnesota must recognize the risk in these changes – starting, the report explains with recognizing costs…
Specifically, the states should assess immediately what it actually costs to provide broadband telecommunications services, particularly in more vulnerable high-cost regions that may or may not be funded by CAF II.
I think that information may be difficult to get. But we need it to further discussions…
The fundamental financial question is about the realistic revenue and cost projections for providing service in unserved / underserved areas, so that legislators and commissions can better understand whether there will be problems in achieving the policy goal of universal availability of basic voice/911 and advanced communications services. Based on an improved perspective regarding the financial challenges and opportunities in serving high-cost areas, policymakers should have a clear-eyed view about whether economically rational companies and investors will invest scarce capital and operating resources to provide services in these areas.